Pre-incorporation contracts, deeds and obligations

HC Deb 26 October 1989 vol 158 cc1178-9

36C.—(1) A contract which purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly.

(2) Subsection (1) applies—

1. (a) to the making of a deed under the law of England and Wales, and
2. (b) to the undertaking of an obligation under the law of Scotland, as it applies to the making of a contract.".

(5) In Schedule 22 of the Companies Act 1985 (provisions applying to unregistered companies), at the appropriate place insert—

"Section 36	Company contracts.	Subject to section 718(3).
Sections 36A and 36B	Execution of documents.	Subject to section 718(3).
Section 36C	Pre-incorporation contracts, deeds and obligations.	Subject to section 718(3).".

(6) The Secretary of State may make provision by regulations applying sections 36 to 36C of the Companies Act 1985 (company contracts; execution of documents; pre-incorporation contracts, deeds and obligations) to companies incorporated outside Great Britain, subject to such exceptions, adaptations or modifications as may be specified in the regulations.

Regulations under this subsection shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(7) Schedule (Company contracts, seals &c.: further provisions) contains further minor and consequential amendments relating to company contracts, the execution of documents by companies and related matters.'.—[Mr. Redwood.]

Brought up, and read the First time.

Mr. Redwood

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this it will be convenient to take Government amendments Nos. 123 and 151.

10 pm

Mr. Redwood

The present clause permits companies to dispense with the requirement of having a company seal and makes alternative provision for executing documents. The revised provisions make the following changes to the Companies Act. First, the new clause incorporates reforms proposed by the Scottish Law Commission on the execution of documents by companies under Scottish Law. Secondly, it takes up proposals suggested in another place that to execute documents other than by sealing, two directors or a director and the secretary should be permitted to sign instead of just a director and the secretary as first proposed. Thirdly, it clarifies and improves the proposals in the present clause 123 in respect of companies executing documents in England and Wales. Fourthly, it makes provisions with respect to the execution of documents by companies incorporated outside Great Britain.

In all those changes, we are grateful for the comments of several professional bodies in both Scotland and England. I should add that, in respect of Scotland, it had originally been intended that the provisions would be included in a separate private Member's Bill backed by the Scottish Law Commission on the Law of Writings. Unfortunately, that Bill failed to gain a Second Reading and we are therefore pleased, through the Bill, to pick up those provisions affecting companies. I hope that the House will welcome that.

Mr. Nicholas Baker

I welcome the new clause. I have one concern, which I hope my hon. Friend can allay. The new clause provides that companies will be deemed to have delivered deeds when they execute them. Subsection (5) states A document executed by a company which makes it clear on its face that it is intended by the person or persons making it to be a deed has effect, upon delivery, as a deed; and it shall be presumed, unless a contrary intention is proved, to be delivered upon its being so executed. In that form, it appears that completion meetings will have to change because, as I understand the clause, a company will not be able to execute a document before a meeting and then send it to that meeting a day or two later to have the date put on it and for it to be brought into effect upon that date.

The subsection would have the effect of making the document come into effect when it is executed—possibly two days before the meeting. That could make life difficult for many commercial transactions. Can my hon. Friend allay that concern?

Mr. Redwood

I wonder whether my hon. Friend would allow me to write to him on that point at my leisure, when I have had time to consider it.

Question put and agreed to.

Clause read a Second time, and added to the Bill.